Title: Agency costs and Islamic bond issuers' long-run performance in Malaysia

Authors: Mohd Sobri Minai; Md Mohan Uddin; Yusnidah Ibrahim

Addresses: School of Business Management, College of Business, Universiti Utara Malaysia, Sintok, Kedah 06010, Malaysia ' School of Business and Economics, United International Univrsity, H-80, R-8/A, Satmasjid Road, Dhanmondi, Dhaka-1209, Bangladesh ' School of Economics, Finance and Banking, College of Business, Universiti Utara Malaysia Sintok, Kedah 06010, Malaysia

Abstract: The extensive issuance of Islamic bonds in different parts of the world raises the question of whether such a financing activity leads to better firm performance or not and what the determinants are of this performance. The literature offers scant answers. Thus, this study measures the long-run performance of Malaysian firms following their Islamic debt issues and explores the agency cost explanations of the performance. One-, two-, and three-year stock return performances are measured by the buy and hold abnormal return (BHAR) of Islamic debt issues using samples of 113, 101, and 86 Islamic debt issues, respectively, in the 2001-2009 period. The significance of the performance is tested by heteroscedasticity-and-serial correlation-consistent t-statistics. The determinants of BHAR are investigated using the ordinary least square regression method. The results show a significant positive long-run performance beyond a one-year period that is negatively influenced by growth opportunity and free cash flow when the issue increases the debt ratio.

Keywords: corporate finance; Islamic debt; long-run performance; capital structure; emerging markets; sukuk; long-run event study; agency costs; growth opportunity; free cash flow; FCF.

DOI: 10.1504/GBER.2017.10007937

Global Business and Economics Review, 2017 Vol.19 No.6, pp.745 - 759

Received: 24 Jun 2015
Accepted: 15 Feb 2016

Published online: 12 Oct 2017 *

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